SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
August 4, 1999 0-21486
HARRY'S FARMERS MARKET, INC.
------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2037452
------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1180 Upper Hembree Road, Roswell, Georgia 30076
- ----------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 667-8878
--------------
N/A
---
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- ______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class A Common 4,139,375
------------------------------- ---------------------------------
Class Outstanding at September 16, 1999
Class B Common 2,050,701
------------------------------- ---------------------------------
Class Outstanding at September 16, 1999
-1-
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
-2-
Harry's Farmers Market, Inc. and Subsidiaries
Consolidated Balance Sheets
Amounts in thousands (Unaudited)
August 4, February 3,
1999 1999
------------------- ------------------
ASSETS
CURRENT ASSETS
Cash $ 708 $ 1,697
Accounts receivable, net of allowance 43 526
Inventories 8,794 7,138
Prepaid expenses 557 431
Assets held for sale - 281
Other current assets - 76
Deferred transaction costs 165 --
------------------- ------------------
Total current assets 10,267 10,149
------------------- ------------------
PROPERTY AND EQUIPMENT
Buildings 31,676 31,328
Equipment 30,602 30,438
Vehicles 184 191
------------------- ------------------
62,462 61,957
Accumulated depreciation ( 30,113 ) (27,861)
------------------- ------------------
32,349 34,096
Land 7,224 7,224
------------------- ------------------
Total property and equipment 39,573 41,320
------------------- ------------------
OTHER ASSETS
Assets held for sale 4,900 4,900
Deposits on equipment 247 240
Loan costs 134 110
Other 289 268
------------------- ------------------
5,570 5,518
------------------- ------------------
Total assets $ 55,410 $ 56,987
=================== ==================
See accompanying notes to financial statements
-3-
Harry's Farmers Market, Inc. and Subsidiaries
Consolidated Balance Sheets
Amounts in thousands (Unaudited)
August 4, February 3,
1999 1999
---------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations $ 561 $ 991
Accounts payable - trade 6,915 8,729
Workers' compensation and general liability
insurance 281 253
Accrued payroll and payroll taxes payable 625 625
Sales taxes payable 55 128
Other accrued liabilities 1,205 870
----------------- ----------------
Total current liabilities 9,642 11,596
----------------- ----------------
LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES 14,876 14,203
----------------- ----------------
CONVERTIBLE DEBT 15,219 15,159
----------------- ----------------
OTHER NON-CURRENT LIABILITIES 462 478
----------------- ----------------
REDEEMABLE PREFERRED STOCK 10,656 10,582
----------------- ----------------
STOCKHOLDERS' EQUITY
Common Stock - Class A 34,681 34,681
Common Stock - Class B 3,936 3,936
Additional Paid-in Capital 1,306 1,380
Accumulated deficit (35,368 ) (35,028)
----------------- ----------------
Total stockholders' equity 4,555 4,969
----------------- ----------------
Total liabilities and stockholders' equity $ 55,410 $ 56,987
================= ================
See accompanying notes to financial statements
-4-
Harry's Farmers Market, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Amounts in thousands, except per share date For the Thirteen Weeks Ended,
--------------------------------------------------------------------------------
August 4, 1999 July 29, 1998
-------------------------------------- ---------------------------------------
Net sales $35,160 100.0 % $34,404 100.0 %
Cost of goods sold 24,967 71.0 25,030 72.8
------------------ ----------------- ------------------ ------------
Gross profit 10,193 29.0 9,374 27.2
------------------ ----------------- ------------------ ------------
Operating expenses
Direct store expenses 5,943 16.9 5,490 16.0
Selling, general & administrative expenses 3,052 8.7 3,548 10.3
Depreciation and other amortization 1,018 2.9 889 2.6
------------------ ----------------- ------------------ ------------
Total operating expenses 10,013 28.5 9,927 28.9
------------------ ----------------- ------------------ ------------
Operating income (loss) 180 0.5 (553) (1.7)
Interest expense (569) (1.6) (600) (1.7)
Other income 232 0.6 342 1.0
------------------ ----------------- ------------------ ------------
Pretax loss (157) (0.5) (811) (2.4)
Income taxes - - - -
------------------ ----------------- ------------------ ------------
Net loss (157) (0.5) (811) (2.4)
Provision for accretion of warrants (37) (0.1) (37) (0.1)
------------------ ----------------- ------------------ ------------
Net loss applicable to common shareholders $ (194) (0.6)% $ (848) (2.5)%
================== ================== ================== ============
Net loss per common share - Basic $(0.03) $( 0.14)
================== ==================
Net loss per common share - Diluted $(0.03) $(0.14)
================== ==================
See accompanying notes to financial statements
-5-
Harry's Farmers Market, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Amounts in thousands, except per share date For the Twenty-Six Weeks Ended,
---------------------------------------------------------------------------------
August 4, 1999 July 29, 1998
------------------------------------- -----------------------------------------
Net sales $68,834 100.0 % $67,463 100.0 %
Cost of goods sold 49,306 71.6 48,349 71.7
------------------ ----------------- ------------------ -----------
Gross profit 19,528 28.4 19,114 28.3
------------------ ----------------- ------------------ -----------
Operating expenses
Direct store expenses 11,790 17.1 10,800 16.0
Selling, general & administrative expenses 6,198 9.0 6,618 9.8
Depreciation and other amortization 2,051 3.0 1,927 2.8
------------------ ----------------- ------------------ -----------
Total operating expenses 20,039 29.1 19,345 28.6
------------------ ----------------- ------------------ -----------
Operating loss (511) (0.7) (231) (0.3)
Interest expense (1,072) (1.6) (1,197) (1.8)
Other income 1,243 1.8 677 1.0
------------------ ----------------- ------------------ -----------
Pretax loss (340) (0.5) (751) (1.1)
Income taxes - - -
------------------ ----------------- ------------------ -----------
Net loss (340) (0.5) (751) -
------------------ ----------------- ------------------ -----------
Provision for accretion of warrants (74) (0.1) (74) (0.1)
------------------ ----------------- ------------------ -----------
Net loss applicable to common shareholders $ (414) (0.6)% $ (825) (1.2)%
================== ================= ================== ===========
Net loss per common share - Basic $(0.07) $( 0.13)
================== ==================
Net loss per common share - Diluted $(0.07) $(0.13)
================== ==================
See accompanying notes to financial statements
-6-
Harry's Farmers Market, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Amounts in thousands, except per share data For the Twenty-Six Weeks Ended,
--------------------------------------------
August 4, 1999 July 29, 1998
--------------------------------------------
Changes in Cash
Cash flows from operating activities:
Net income $ (340) $ (751)
Adjustments to reconcile net earnings
to cash provided by operations:
Depreciation and amortization 2,314 2,263
Amortization of debt discount 114 -
Gain on sale of assets (60) -
Decrease in receivables 473 103
Increase in inventories (1,656) (725)
Increase in prepaid expenses (126) (124)
Increase in other current assets (51) (18)
Decrease in accounts payable (1,814) (395)
Increase in accrued liabilities 346 427
Decrease in deferred revenue (72) (72)
----------------- -----------------
Net cash provided by (used in) operating
activities (872) 708
----------------- -----------------
Cash flows from investing activities:
Capital expenditures, including capitalized
interest (574) (2,334)
Proceeds from sale of property and equipment 145 37
Proceeds from sale of other assets 262 -
Decrease in notes receivable - 50
----------------- -----------------
Net cash used in investing activities (167) (2,247)
----------------- -----------------
Cash flows from financing activities:
Line of credit 800 172
Principal payments on long-term obligations (611) (1,038)
Proceeds from issuance of convertible debt - 2,000
Deferred loan costs (139) -
----------------- -----------------
Net cash provided by financing activities 50 1,134
----------------- -----------------
Net decrease in cash (989) (405)
Cash at beginning of period 1,697 1,479
----------------- -----------------
Cash at end of period $ 708 $ 1,074
================= =================
Supplemental Schedule of Noncash Investing and
Financing
Activities:
Capital leases $ - $ 2,385
================= =================
See accompanying notes to financial statements
-7-
NOTES TO FINANCIAL STATEMENTS
August 4, 1999
NOTE A - BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by the
Company without audit. These statements reflect all adjustments, which are, in
the opinion of management, necessary to present fairly the financial position as
of August 4, 1999, and the results of operations and cash flows for the twenty-
six weeks then ended. All such adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes for the fiscal
year ended February 3, 1999, included in the Company's Annual Report on Form 10-
K filed by the Company.
Due to the seasonal nature of the Company's business, the results for the
quarter ended August 4, 1999, are not necessarily indicative of the results for
the entire 2000 fiscal year.
NOTE B - INVENTORIES
Inventories consist primarily of grocery items, which are stated at the lower of
cost or market. Cost is determined under the first-in, first-out (FIFO)
valuation method.
NOTE C - EARNINGS PER SHARE
Basic net earnings per common share are based upon the weighted average number
of common shares outstanding during the period. Diluted net earnings per common
share are based upon the weighted average number of common shares outstanding
plus dilutive potential common shares, including options and warrants
outstanding during the period. All comparative earnings per share data for
prior periods presented have been restated. The following table sets forth the
computation of basic and diluted income (loss) per share.
For the thirteen weeks ended:
August 4, 1999 July 29, 1998
-------------------- --------------------
Numerator for basic loss per common share $ (194) $ (848)
==================== ====================
Denominator for basic loss per common share - weighted
average shares outstanding $6,183 $6,183
Effect of assumed conversion of debt and preferred stock - -
-------------------- --------------------
Denominator for diluted net loss per common share -
adjusted weighted average shares outstanding $6,183 $6,183
==================== ====================
Basic net loss per share $(0.03) $(0.14)
==================== ====================
Diluted net loss per share $(0.03) $(0.14)
==================== ====================
-8-
For the twenty-six weeks ended:
August 4, 1999 July 29, 1998
-------------------- --------------------
Numerator for basic loss per common share $ (414) $ (825)
==================== ====================
Denominator for basic loss per common share -weighted
average shares outstanding 6,183 6,183
Effect of assumed conversion of debt and preferred stock - -
-------------------- --------------------
Denominator for diluted net loss per common share
adjusted weighted average shares outstanding 6,183 6,183
==================== ====================
Basic net loss per share $(0.07) $(0.13)
==================== ====================
Diluted net loss per share $(0.07) $(0.13)
==================== ====================
NOTE D - CLAIMS AND LITIGATION
The Company is involved in various claims and litigation, which arise in the
ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position of the Company.
NOTE E - SETTLEMENT WITH PROGRESSIVE FOOD CONCEPTS, INC.
On September 2, 1999, the Company executed an agreement, subject to certain
conditions, to terminate its relationship with Progressive Food Concepts, Inc.
("Progressive"), a subsidiary of Boston Chicken, Inc. The agreement to
terminate the relationship was approved by the U.S. Bankruptcy Court in Phoenix,
Arizona on August 26, 1999, where Boston Chicken and Progressive are involved in
bankruptcy proceedings.
Pursuant to the proposed settlement, the Company would pay Progressive $4.0
million in exchange for the satisfaction of all debt owed to Progressive
including $15.5 million of convertible debt; the termination of all consulting
obligations between the parties; the cancellation of warrants to purchase 2.0
million shares of the Company's common stock, and the surrender by Progressive
of its rights to use the Company's intellectual property. The settlement, upon
consummation, would result in a complete termination of the business
relationship between the Company, Progressive and Boston Chicken, Inc. The
settlement is subject to the Company obtaining adequate financing, and, if
necessary, the consent of its senior lender. In addition, the settlement must be
consummated within 30 days of the bankruptcy court approval, unless extended an
additional 15 days by the parties. If the settlement does not close within this
time frame, additional bankruptcy court approval would be required.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
- ---------------------
Thirteen Weeks Ended August 4, 1999 (the "Second Quarter of Fiscal 2000")
compared to Thirteen Weeks Ended July 29, 1998 (the "Second Quarter of Fiscal
1999").
Net sales for the Second Quarter of Fiscal 2000 were approximately
$35.2 million, compared to approximately $34.4 million for the Second Quarter of
Fiscal 1999. The sales increase of $0.8 million or approximately 2.3%, consisted
of a $4.0 million sales increase from new stores, which was partially offset by
a comparable store sales decrease of 8.8 % for the Second Quarter of Fiscal
2000. Management believes that the decrease in comparative store sales is
largely due to growing competition in the Atlanta market and cannibalization by
its new stores.
-9-
Gross profits in the Second Quarter of Fiscal 2000 increased to
approximately $10.2 million or 29.0% of net sales, compared to approximately
$9.4 million or 27.2% of net sales in the Second Quarter of Fiscal 1999. The
increase in gross profit dollars was largely due to a higher gross profit
percent and from gross margin dollars related to the net increase in sales.
Direct store expenses increased to approximately $5.9 million or 16.9
% of net sales in the Second Quarter of Fiscal 2000 compared to approximately
$5.5 million or 16.0% of net sales in the Second Quarter of Fiscal 1999. Direct
store expenses increased as a percent of sales due to (1) the addition of two
new Harry's In a Hurry stores, which generally incur higher direct store
expenses as a percent of sales than mega stores and (2) the decrease in
comparable store sales which resulted in direct store expenses at comparable
stores increasing as a percent of sales.
Selling, general and administrative expenses for the Second Quarter of
Fiscal 2000 decreased to $3.1 million or 8.7% of sales compared to $3.5 million
or 10.3% of sales in the Second Quarter of Fiscal 1999. The decrease was due to
(1) a focused effort by the Company to control its selling, general and
administrative expense and (2) an increase in net sales over which to spread the
cost.
Depreciation and amortization, which includes depreciation and
amortization for the stores and the corporate facilities, but excludes the
manufacturing facilities (which are included in cost of goods sold) was $1.0
million or 2.9% of sales for the Second Quarter of Fiscal 2000 compared to $0.9
million or 2.6% of sales for the Second Quarter of Fiscal 1999. The slight
increase in depreciation in the Second Quarter of Fiscal 2000 is primarily due
to the build-out of certain properties (mainly related to the addition of two
new stores and the relocation of the bakery facility to the Alpharetta mega-
store in the first part of fiscal 2000). The increase in depreciation and
amortization costs related to the new assets was primarily offset by assets
which have become fully depreciated since the end of the Second Quarter of
Fiscal 1999.
Due to the reasons set forth above, the Company had an operating
profit of approximately $0.2 million or 0.5 % of net sales during the Second
Quarter of 2000 compared to an operating loss of approximately $(0.6) million or
(1.7) % of net sales in the Second Quarter of Fiscal 1999.
Interest expense in the Second Quarter of Fiscal 2000 was
approximately the same as the Second Quarter of Fiscal 1999.
Other income decreased to approximately $0.2 million or 0.6% of net
sales during the Second Quarter of Fiscal 2000, from approximately $0.3 million
or 1.0 % of net sales in the Second Quarter of Fiscal 1999.
For the Second Quarters of Fiscal 2000 and 1999 no income tax
provision was necessary. The Company has unrecognized net operating loss carry
forwards for financial purposes of approximately $32.0 million that may be
applied against future earnings. However, should the Company experience a
change in ownership in accordance with Section 382 of the Internal Revenue Code
of 1986, as amended, the extent that the Company may apply such loss carry
forwards may be limited.
As a result of the above, the Company had a net loss applicable to
common shareholders for the Second Quarter of Fiscal 2000 of approximately
$(0.2) million or $(0.03) per common share - Basic, compared with net loss
applicable to common shareholders of approximately $(0.8) million or $(0.14) per
common share - Basic, during the Second Quarter of Fiscal 1999.
Twenty-Six Weeks Ended August 4, 1999 (the "First Half of Fiscal 2000") compared
to Twenty-Six Weeks Ended July 29, 1998 (the "First Half of Fiscal 1999").
Net sales for the First Half of Fiscal 2000 were approximately $68.8
million compared to approximately $67.5 million for the First Half of Fiscal
1999. The sales increase of $1.3 million or approximately 1.9%, consisted of a
$7.8 million sales increase from new stores partially offset by a comparable
store sales decrease of 9.5% for the First Half of Fiscal 2000. Management
believes that the decrease in comparative store sales is largely due to growing
competition in the Atlanta area and cannibalization by its new stores.
-10-
Gross profits in the First Half of Fiscal 2000 increased to
approximately $19.5 million or 28.4% of net sales, compared to approximately
$19.1 million or 28.3% of net sales in the First Half of Fiscal 1999. The
increase in gross profit dollars was largely due to sales at new stores.
Direct store expenses increased to approximately $11.8 million or
17.1% of net sales in the First Half of Fiscal 2000 compared to approximately
$10.8 million or 16.0% of net sales in the First Half of Fiscal 1999. Direct
store expenses increased due to (1) the addition of two new Harry's In a Hurry
stores, which generally incur higher direct store expenses as a percent of sales
than mega stores, and (2) the decrease in comparable store sales which resulted
in direct store expenses at comparable stores increasing as a percent of sales.
Selling, general and administrative expenses for the First Half of
Fiscal 2000 decreased to $6.2 million or 9.0% of sales compared to $6.6 or 9.8%
of sales in the First Half of Fiscal 1999. The decrease is due to (1) a focused
effort by the Company to control its selling, general and administrative expense
and (2) an increase in net sales over which to spread the cost.
Depreciation and amortization, which includes depreciation and
amortization for the stores and the corporate facilities, but excludes the
manufacturing facilities (which are included in cost of goods sold) was $2.1
million or 3.0 % of sales for the First Half of Fiscal 2000 compared to $1.9
million or 2.9% of sales for the First Half of Fiscal 1999. The slight
increase in depreciation in the First Half of Fiscal 2000 is primarily due to
the build-out of certain properties (mainly related to the addition of two new
stores and the relocation of the bakery facility to the Alpharetta mega-store in
the first part of fiscal 2000). The increase in depreciation and amortization
costs related to the new assets was primarily offset by assets which have become
fully depreciated since the end of the First Half of Fiscal 1999.
Due to the reasons set forth above, the Company had an operating loss
of approximately $(0.5) million or (0.7) % of net sales during the First Half of
2000 compared to an operating loss of approximately $(0.2) million or (0.3) % of
net sales in the First Half of Fiscal 1999.
Interest expense decreased slightly to approximately $1.1 million or
1.6% of net sales in the First Half of Fiscal 2000, compared to approximately
$1.2 million or 1.8% of net sales in the First Half of Fiscal 1999.
Other income increased to approximately $1.2 million or 1.8% of net
sales during the First Half of Fiscal 2000, from approximately $0.7 million or
1.0 % of net sales in the First Half of Fiscal 1999. This increase was
primarily due to the Company receiving approximately $500,000 from the sale of
certain property rights related to the use of a billboard on one of the
Company's properties.
For the First Half of Fiscal 2000 and 1999 no income tax provision was
necessary. The Company has unrecognized net operating loss carry forwards for
financial purposes of approximately $32.0 million that may be applied against
future earnings. However, should the Company experience a change in ownership
in accordance with Section 382 of the Internal Revenue Code of 1986, as amended
the extent that the Company may apply such loss carry forwards may be limited.
As a result of the above, the Company had a net loss applicable to
common shareholders for the First Half of Fiscal 2000 of approximately $(0.4)
million or $(0.07) per common share - Basic, compared with net loss applicable
to common shareholders of approximately $(0.8) million or $(0.13) per common
share - Basic, during the First Half of Fiscal 1999.
Liquidity and Capital Resources
During the First Half of Fiscal 2000, the Company's operating
activities used approximately $0.9 million of cash flow. The Company invested
approximately $0.6 million for capital expenditures, and received approximately
$0.4 million in proceeds from the sale of certain assets. Additionally, during
the First Quarter of Fiscal 2000, the Company borrowed approximately $0.8
million on its line of credit and paid approximately $0.6 million on its long-
-11-
term obligations. As a result, net cash during the First Half of Fiscal 2000
decreased by approximately $1.0 million, which resulted in a cash balance at the
end of the First Quarter of Fiscal 2000 of approximately $0.7 million.
Cash used in investing activities in the First Half of Fiscal 2000 was
approximately $0.1 million. Investing activities consisted of approximately
$0.6 million of capital expenditures for property and equipment relating to
stores, manufacturing facilities and the corporate infrastructure. In addition,
cash provided by investing activities consisted of approximately $0.2 million in
proceeds from the sale of equipment and approximately $0.3 million in proceeds
from the sale of other assets.
To increase liquidity, the Company continues to seek
purchaser(s)/leasee(s) for the unused portion of its distribution facility, as
well as a remaining outparcel at its Gwinnett County megastore property.
As of August 4, 1999, the Company had working capital of approximately
$0.6 million, compared to a working capital deficit of approximately $1.4
million at the end of the prior fiscal year. The improvement in the Company's
total working capital position as of August 4, 1999, compared to the end of the
prior year, is due to (1) the Company obtaining long-term operating leases to
finance certain equipment for the two new Harry's In A Hurry stores which opened
in fiscal 1999 and (2) the proceeds from the sale of the right to place a
billboard on its property for approximately $500,000.
The Company's ability to fund its working capital and capital
expenditure requirements, make principal and interest payments and meet its
other cash requirements depends, among other things, on the availability of
internally generated funds and the continued availability of, and compliance
with, its credit facilities. Management believes that internally generated
funds and available credit facilities will provide the Company with sufficient
sources of funds to satisfy its anticipated cash requirements in fiscal 2000.
However, if there is a significant reduction of internally generated funds, the
Company may require funds from outside financing sources. In such event, there
can be no assurance that the Company would be able to obtain such funding as and
when required or on acceptable terms.
Year 2000
In 1997, the Company established an investigative group supervised by
Harry A. Blazer, the President and Chief Executive Officer of the Company, which
consisted of personnel from the Company's internal MIS department and outside
product specialists. This group has identified all computer-based systems and
applications that the Company uses in its operations and has categorized them by
their critical nature to the operations of the Company. The group is in the
process of determining and performing the necessary modifications and
replacements to insure that the Company's operations will be minimally effected
by the Year 2000 issue.
Although the investigative group is also verifying the Year 2000
compliance of the Company's significant outside vendors, at the present time, it
does not believe that the failure of any particular third party to be Year 2000
compliant will have a material adverse effect on the operations or financial
condition of the Company. The investigative group is also in the process of
establishing and implementing a contingency plan for the Company to provide
alternative methods to insure the continuation of the Company's operations in
the event of a Year 2000 based failure either internally or externally.
Based on current information, management believes that all hardware
and software modifications necessary to operate and effectively manage the
Company will be performed by the beginning of the year 2000 and that related
expenditures over the remainder of fiscal 2000 will not exceed $200,000.
-12-
Other Matters
The Nasdaq Stock Market has various requirements for continued listing
on the Nasdaq National Market, including a requirement that the total market
capitalization of the Company not fall below $5,000,000 for any 30-consecutive
business day period and that the minimum bid price for the Company's common
stock not fall below $1.00 a share. The Company received notice from the NASDAQ
National Market that it does not currently satisfy the minimum market
capitalization or minimum bid price requirements. The Company's management met
with representatives of the NASDAQ National Market on July 29, 1999, and
presented a plan, which included the settlement with Progressive, to increase
the share price and requested an extension of time to see what impact such plan
would have upon the Company's stock price. There can be no assurance that the
Company's plan will have the desired impact upon the Company stock price nor
that the NASDAQ Stock Market will delay its decision until the settlement is
completed and, therefore, there can be no assurance that the Company will be
able to continue to list its Class A Common Stock on the Nasdaq National Market.
Cautionary Statement for Purposes of "Safe Harbor Provisions" of the Private
Securities Litigation Reform Act of 1995.
Certain statements contained in this filing are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, such as statements relating to financial results, business strategy,
plans for future business development activities, capital spending or financing
sources, capital structure and the effects of regulation and competition, and
are thus prospective. Such forward-looking statements are subject to risks,
uncertainties and other factors, which could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. Potential risks and uncertainties include, but are not limited to:
economic conditions, changes in consumer spending, weather, competition, changes
in the rate of inflation, changes in state or federal legislation or regulation,
inability to develop new stores as planned, acceptance of new stores, stability
and availability of product costs, unavailability of anticipated financings,
inability to consummate proposed transactions, interest rates, the impact of
certain litigation and other uncertainties detailed from time to time in the
Company's Securities and Exchange Commission filings.
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable.
-13-
PART II - OTHER INFORMATION
-14-
Item 1. Legal Proceedings
From time to time the Company is involved in lawsuits in the ordinary
course of business. Such lawsuits have not resulted in any material losses to
date, and the Company does not believe that the outcome of any existing lawsuits
will have a material adverse effect on its business or financial condition.
In addition, on May 7, 1999, Fine Distributing, Inc. ("Fine") filed
suit against the Company in the Superior Court of Cobb County, Georgia, alleging
that the Company repudiated a distributing agreement with Fine (the
"Complaint"), in breach of the terms of the agreement. Fine is seeking an
unspecified amount of damages. The Company has timely answered the Complaint and
has filed certain counterclaims against Fine related to the distribution
agreement, including claims that Fine breached the distribution agreement and
conspired with another party to defraud the Company. The Company has not yet
determined the amount of damages it has suffered as a result of these breaches.
The Company believes the claims made by Fine are without merit and intends to
vigorously defend itself against all allegations as well as pursue all remedies
available to the Company raised in its counterclaims; however, due to the
uncertainties of litigation, the Company is unable to predict an outcome at this
time. Discovery in this action is ongoing.
Item 2. Changes in Securities
There been no material modification in the instruments defining the
rights of shareholders during the First Quarter of Fiscal 2000. None of the
rights evidenced by the shares of the Company's common stock have been
materially limited or qualified by the issuance or modification of any other
class of securities.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
On June 16, 1999, the Company's held its Annual Meeting of
Shareholders (the "Meeting"). At the Meeting, the shareholders of the Company
voted on the following matter:
Election of the following individuals, which as of the date of the
Meeting, constituted the entire Board of Directors, as directors of the Company
for a term of one year, with votes cast as set forth below
Nominee: Votes For: Votes Against:
-------- ---------- --------------
Harry A. Blazer 24,046,426 148,915
John D. Branch 24,074,989 120,352
Robert C. Glustrom 24,061,439 133,902
Charles W. Sapp 24,071,339 124,002
Item 5. Other Information
None
-15-
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits:
10.1 Settlement and Release Agreement dated as of September 2, 1999,
by and among the Company, Harry Blazer, Progressive Food
Concepts, Inc. and Boston Chicken, Inc.
27 Financial Data Schedule
B. No reports on Form 8-K were filed during the quarter ended August 4,
1999.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARRY'S FARMERS MARKET, INC.
Dated: September 17, 1999 By: /s/ Harry A. Blazer
____________________________________
HARRY A. BLAZER
Chairman, President and Chief Executive
Officer
(principal executive officer)
Dated: September 17, 1999 By: /s/ John D. Branch
_____________________________________
John D. Branch
Senior Vice President & Chief Financial
Officer
(principal financial and accounting
officer)
-16-